The State of Israel is doing "not badly" compared with other countries, and, "if you deduct the Arabs and ultra-Orthodox from inequality indexes, we're in great shape," Prime Minister Benjamin Netanyahu told TheMarker on Wednesday in a special interview for the Passover holiday.

Equal opportunity is key, in the prime minister's view. "Populism is dangerous. It contravenes the complex truth of managing a free economy," Netanyahu said. "The right combination is between a free economy and social policy that addresses the needs of society and creates equal opportunity. The State of Israel can be proud of what we're doing," he said, then qualified that if the ultra-Orthodox and Arab communities are set aside from the calculation of inequality, "we're in great shape."

The latest annual report on Israel from the International Monetary Fund, published at the start of the month, praised the state of the Israeli economy. But it also claimed that inequality has increased badly in Israel during the last 20 years, making Israel one of the three IMF members with the worst inequality problem. If Israel doesn't take steps to integrate the Arab and Haredi communities into the workforce, the IMF warned, Israeli growth will suffer over time.

In December 2011 the Organization for Economic Cooperation and Development also chimed in, saying that Israel was among the four member countries with the widest gap between rich and poor. Israel is in good company - the other three were the United States, Mexico and the UK.

According to the prime minister, the origin of the deterioration is the Haredi and Arab communities, where proliferation rates are high and participation in the workforce is meager. In other words, families tend to be bigger and breadwinners scarcer, making poverty a problem.

These two communities are part of a problem that led the middle class to take to the streets last summer, protesting the onerous cost of living, because the middle class feels it's financing them, Netanyahu said. "They're not always wrong," he added.

He heard the public protests, Netanyahu said, and isolated three main accusations - the high cost of housing, the high cost of caring for young children, and the high cost of goods and services, all of which derogate from living standards among people who work.

He took action on all three fronts, Netanyahu claims.

"About housing, I took action well before the protest began," said Netanyahu. "I acted on four fronts. First of all, to [get people to move beyond] Gedera-Hadera. We are a small country, it's true, but we don't have to be a Lilliputian one concentrated in the greater Tel Aviv area. The second thing was to increase the building of new homes, from 30,000 to 45,000 a year, working with the housing minister. Third of all was the reform of the Israel Lands Administration and the fourth thing, which is ongoing, is solving the planning problem."

He rejected the claim that a large proportion of new building projects are earmarked for Haredi families and don't solve the housing problem for non-Orthodox Israelis. "The extra 15,000 building starts isn't for the Haredim, it's for everybody," the prime minister said. "I didn't need a protest to take care of the housing problem."

On complaints that food prices haven't really retreated and that a basket of staple foods for Passover costs more this year than in 2011 at some retail chains, Netanyahu said that isn't the indication the government has about food prices. "What's raising these prices are monopolies and cartels," Netanyahu said, and then pointed out that the government has played a role in prices: "The most important monopoly and cartel is the government. It's the one raising the price, including through import taxes, in order to finance the bureaucracy and the system of government officials. There are all sorts of barriers that allow interested parties to charge high prices." It's being handled, he vowed.

His government, which is entering its fourth year in power, also forged a blanket decision to provide free day-care to children from the age of 3. "We gave tax credits to working parents," Netanyahu said. "It's money. It helps relieve the distress." The protest movement may complain that the government hasn't done anything, but the fact is it isn't true, the prime minister said.

On the topic of popularity, polls show his traditional supporters are behind him despite the climbing cost of living, but he isn't gaining new supporters. "Some will criticize me no matter what I do," Netanyahu said. "That's why I don't relate to it but do the right thing, that I believe in."

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